Third World Way

Wednesday, July 25, 2007

The UN Global Compact may be the best way to draw corporations into the development process. Is its optimism justified? A CERTAIN zeal pervades meetings of the United Nations Global Compact. Not surprising, as its cause is lofty: to harness the power of business to make the world a richer, fairer and cleaner place. The idea is catching on. In early July, the compact?s annual summit drew over a thousand delegates to Geneva?s lakeside, from government agencies, non-governmental organisations (NGOs) and?most importantly?international corporations. But is the optimism and self-belief that imbues such talk-fests justified?

Since its launch in 2000, the compact, with its international legitimacy and unrivalled convening power, has emerged as the world’s dominant force for promotion of the (often ill-defined) concept of corporate social responsibility (CSR). Its modus operandi is deceptively simple: companies agree to adopt ten core principles regarding human rights, labour, environmental and anti-corruption standards, and to report annually on their own progress towards meeting them. So far, 3,000 firms from 116 countries have signed up. This year, six new principles were introduced, for business schools (see article).AFP Two-way traffic

The project has its critics. The self-assessment process is neither monitored nor evaluated objectively; critics deride it as a public-relations gift for participants. Alex Wijeratna of ActionAid, an NGO that was an early supporter of the compact but later withdrew its support, argues that it has no teeth and includes firms that adhere to some principles, while breaching others.

A fair point. But the low bar may have been set deliberately. The compact has been able to attract enough members that it can claim legitimacy to set rules in the increasingly crowded and confusing field of CSR. At this stage, simply getting a firm to commit to something on paper?and expose itself to scrutiny?is worthwhile. A more stringent system of evaluation, such as peer review, might become feasible later. And the compact has, at least once, bared its teeth: last year, for the first time, the compact de-listed 500 members who had been sluggish in reporting progress. More are expected to go this year.

Enlightened self-interest

Though far from perfect, the compact makes a remarkable effort to a radically shifting debate about sustainability. The battle lines that once separated the hard-nosed champions of profit from the rock-throwing demonstrators are fading, to be replaced by tentative, widening, NGO-corporate collaboration. The compact seeks to provide a framework, now that enlightened NGOs are starting to realise that their goals might be better achieved by harnessing the wealth, reach and dynamism of multinationals rather than by attacking them (though many insist on doing both).

Meanwhile, managers recognise the long-term benefits of paying attention to environmental, human-rights and governance issues?benefits that go beyond defensive public relations. With imagination, and help from NGOs, many firms think they can deliver gains for society beyond their products and services. These positive “spillovers” can be profitable, too?last December, in the Harvard Business Review, Michael Porter set out a framework by which corporations can create “shared value?not only to foster economic and social development but to change the way companies and society think about each other” (see article).

Advocates of CSR try making the case on behalf of its extrinsic benefits?arguing that it attracts better recruits, bolsters share price, eases market entry, helps to win licenses and more. But such claims are hard to prove. Anthony Ling, Goldman Sachs?s chief investment officer, and a staunch defender of the compact, admits that investments based on CSR criteria have not always outperformed market benchmarks. It will, he says, take some years to prove whether his bank?s new, more sophisticated, approach yields a consistent premium. But there are plenty of examples of mutual gain; Anglo American, a mining conglomerate, battles AIDS not just for moral reasons: the disease can lay waste to staff at all levels.The battle lines separating hard-nosed champions of profit from rock-throwing demonstrators are fading

Partnerships between firms and NGOs are springing up. Oxfam, an anti-poverty group, works closely with multinationals such as Unilever, a consumer-goods giant. Relief agencies have welcomed the help of logistics firms on their rapid-response plans for natural disasters. The development potential of mobile-phone networks in Africa is now widely recognised. Even pharmaceuticals firms, castigated by many an NGO over patents issues, are developing and donating drugs to eradicate trachoma, river blindness, leprosy and other preventable diseases, despite the lack of a market in the West.

Past tensions still exist, however. E.ON, an energy giant that works with Save the Children, echoes firms? frustrations over the persistence an ideological gulf between the different kinds of partners, which is felt even in successful ventures. Henrik Skovby of Dahlberg, a consultancy, says many NGOs display a staggering lack of basic business skills. At the same time NGOs, perhaps wise to be sceptical, are wary of being seen to be bought off by their former adversaries; Jeremy Hobbs of Oxfam warns against getting “too cosy” with big business, stressing “critical engagement” instead. Sir Mark Moody-Stuart, Anglo American?s chairman, agrees that the private sector sometimes needs to be held in check.